| Article Title: "Wrong
Again " |
Author:
Section: Issues &
Insights |
Date: 1/9/2004 |
|
Budget: The IMF, in a new report, says the U.S.
deficit poses a threat to the world economy. Funny, but we think the one
in Europe deserves a lot more attention.
This year, forecasts put
the U.S. deficit at just under $500 billion, or 4.5% of gross domestic
product. That, according to the IMF, is more than just a problem for U.S.
budget makers; it's a problem for the world economy, threatening the
nascent global rebound with higher interest rates and a plunging dollar.
The IMF has some advice: Sure, you should control spending, but
why not get rid of President Bush's tax cuts while you're at it?
That's the only way to pare those dangerous deficits.
We
sympathize with the IMF. Doling out unwanted advice to countries around
the world isn't easy. Especially when it's so often wrong.
The
U.S. would make an enormous error if it rescinded Bush's tax cuts.
They're the very reason why our economy has finally begun growing at such
a rapid clip.
The 5%-plus GDP growth many expect this year and
next will cut into the deficit - just as it did in the late 1990s, when a
soaring economy, coupled with spending restraint by a GOP-led Congress,
created surpluses.
As such, we agree with Treasury Secretary John
Snow, who said Wednesday it would be a "huge mistake" to undo
Bush's tax cuts. And we think Snow's prediction the U.S. will cut
its deficit from 4.5% of GDP this year to 2% in five years is too glum.
The budget can be balanced by decade's end if spending is controlled.
That's not to say deficits don't matter. In the long run, they do.
But the U.S. has shown it can grow out of them. The same can't be said for
Europe. That's where the real problem is.
As the chart shows,
deficits for the two largest economies in Europe, France and Germany, are
above 3% of GDP, the limit placed by the European Union on its members.
And they're rising.
Why is this a bigger problem than the U.S.'
deficit? Because unlike the U.S., Europe is barely growing. And its budget
deficits are structural, the result of aging populations, too-high taxes,
excessive regulation and a creaking welfare state whose costs are soaring.
These problems won't go away with a turn in the business cycle.
Nor will they suddenly get better if the U.S. decides to raise its taxes
to Europe's punitive levels. Unfortunately, a perpetually stagnant Europe
threatens to slow down the entire world economy.
So for now, we'll
just thank the IMF for its advice and go on our way. We'll bet in five
years the U.S. budget gap will be a lot smaller than today. We're pretty
sure the same won't be true for Europe. |
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